Forex reserves down by over Ksh.101 billion on shilling depreciation

Kenya Shilling dropped 2.4 against dollar in Q3

Kenya’s foreign exchange (forex) reserves have dropped by a huge Ksh.101.16 billion in the last three months to December 9 this year, sending the local currency to new lows.

The forex reserves – key for foreign debt repayments and imports – touched Ksh.985.44 billion last Thursday, marking the 13th straight week of reduction since the peak of Ksh.1.086 trillion on September 9.

The falling reserves have coincided with a weakening shilling, which has been touching new lows with each new day since November 9, according to the Central Bank of Kenya (CBK).

The Kenyan Shilling slumped to a historic low against the US Dollar Wednesday, signaling tough times for Kenyans ahead of the festive season.

According to data from Metropol Harvest, the local unit exchanged at Ksh.112.99 against the United States Dollar, its lowest valuation ever.

Forex traders have been attributing the fall on increased demand for dollars by firms revving up imports to cater for the higher spending that is traditionally witnessed during the festive season.

The continued weakening of the local currency, however, comes despite Kenya enjoying debt service relief and having received disbursements from the International Monetary Fund (IMF) and Eurobond this year.

Debt Service Suspension Initiative, for instance, relieved Kenya of a Ksh.77 billion debt burden between January and this month.

The relief, added to Ksh.112.5 billion Eurobond proceeds, Ksh.84.4 billion World Bank loan and Ksh.81 billion from the IMF received during the year were expected to support the shilling.

The continued weakening of the shilling could mean loan servicing obligations have remained elevated, limiting the extent to which CBK can defend the shilling.

CBK puts the current stock of foreign currency at 5.34 months import cover, compared to 5.89 months on September 9.

It targets to have reserves of at least 4.5 months of import cover and considers figures above this as more than adequate.

The continued depreciation of the shilling will translate into increased cost of imports such as fuel, cars, industrial machinery, electronics and second-hand clothes as well as set up the country for a higher cost of servicing external loans.

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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